Gold Slides as Powell Says Gradual Rate Hikes to Continue

Gold has posted sharp losses in the Tuesday session. In North American trade, the spot price for an ounce of gold is $1314.53 down 1.40% on the day. In economic news, Federal Reserve Chair Jerome Powell made his first appearance before Congress. Meanwhile, durable goods reports were dismal. Core Durable Goods declined 0.3%, short of the estimate of +0.4%. This marked the second decline in three months. Durable Goods plunged 3.7%, missing the estimate of -2.4%. This reading was the sharpest decline since July. There was better news from CB Consumer Confidence, which improved to 130.8, well above the estimate of 126.2 points. On Wednesday, the US releases Preliminary GDP, with an estimate of 2.5%.

There were no dramatic moments during Jerome Powell’s testimony before a congressional committee on Tuesday. Powell was cautious, saying that the Fed planned to continue its current policy of gradual rate increases, despite the stimulus of government spending and recent tax reform. Powell sounded optimistic about economic conditions, noting that the US economy was benefiting from the global recovery as well as changes in fiscal policy. Importantly, Powell did not address the question of an acceleration of rate hikes. Currently, the Fed has projected three rate hikes in 2018, with a March hike priced in at 87%, according to the CME’s Fed Watch. However, with inflation moving higher and the economy continuing to perform well, many analysts expect the Fed to raise rates four or more times this year. Any hints at an increased pace of rate hikes could send the US dollar broadly higher.

Gold often moves higher when key US indicators point downward, but that has not been the case in the Tuesday session. Despite very soft durable goods reports for January, the dollar has posted gains against other major currencies and has surged against gold. Investors have given the greenback a thumbs-up after Jerome Powell’s testimony earlier, in which he pointed to solid economic conditions and reiterated the need for further rate hikes. Gold has dropped to a 2-week low, and the slide could continue if sentiment over the dollar remains positive.

XAU/USD Fundamentals

Tuesday (February 27)

8:30 US Fed Chair Jerome Powell Testifies

8:30 US Core Durable Goods Orders. Estimate +0.4%. Actual -0.3%

8:30 US Fed Chair Jerome Powell Testifies

8:30 US Durable Goods Orders. Estimate -2.4%. Actual -3.7%

8:30 US Goods Trade Balance. Estimate -72.3B. Actual -74.4B

8:30 US Preliminary Wholesale Inventories. Estimate 0.3%. Actual 0.7%

9:00 US HPI. Estimate 0.4%. Actual 0.3%

9:00 US S&P/CS Composite-20 HPI. Estimate 6.3%. Actual 6.3%

10:00 US CB Consumer Confidence. Estimate 126.2. Actual 130.8

10:00 US Richmond Manufacturing Index. Estimate 15. Actual 28

*All release times are GMT

*Key events are in bold

XAU/USD for Tuesday, February 27, 2018

XAU/USD February 27 at 13:30 EST

Open: 1333.27 High: 1336.84 Low: 1313.45 Close: 1314.53

XAU/USD Technical

S3

S2

S1

R1

R2

R3

1260

1285

1307

1337

1375

1416

XAU/USD posted strong gains in the Asian session. The pair reversed directions in the European session, recording slight losses. The pair has moved lower in North American trade

1307 is providing support

1337 was tested in resistance earlier

Current range: 1307 to 1337

Further levels in both directions:

Below: 1307, 1285 and 1260

Above: 1337, 1375, 1416 and 1433

OANDA’s Open Positions Ratio

XAU/USD ratio is unchanged in the Tuesday session. Currently, short positions have a slim majority (52%), indicative of a slight trader bias towards XAU/USD continuing to move lower.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.

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